The GDP deflator in year 3 is 135 using year 1 as a base year. This means that, on average, the price of goods and services is
A) 135% higher in year 3 than in year 1.
B) 17.5% higher in year 3 than in year 1.
C) 35% higher in year 3 than in year 1.
D) 17.5% higher in year 1 than in year 3.

Question

Quizplus · Accepted Answer

The GDP deflator is a measure of the level of prices of all new, domestically produced, final goods and services in an economy. A GDP deflator of 135 means that the level of prices is 35% higher in year 3 compared to the base year (year 1), because the deflator is expressed as an index number based on 100.

The GDP Deflator in Year 3 Is 135 Using Year